Micro chap14-17 – Flashcards
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A monopoly
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Can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits
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Microsoft faces very little competition from Windows software. Why isn't the price of the software $1,00 per copy?
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Because the company would sell so few copies that they would earn higher profits by selling at a lower price.
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Which of the following statements is not correct?
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Monopolists typically produce larger quantities of output than competitive firms
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patent and copyright laws encourage:
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both creative activity and research and development are correct
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Drug companies are allowed to be monopolists in the drugs they discover in order to
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encourage research
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A natural monopoly occurs when?
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There are economies of scale over the relevant range of output
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When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a ?
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natural monopoly
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When a firm experiences continually declining average total costs:
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society is better served by having one firm supply the product
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Monopoly firms have what kind of curve?
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A downward-sloping demand curve, and they can sell only a limited quantity of output at each price.
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What is the formula for a profit-maximizing monopolist?
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P > MR=MC
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What happens to the price and quantity sold of a drug when its patent runs out?
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The price will fall
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Many economists criticize monopolists because they...?
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produce less than the socially efficient level of output
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Price discrimination is the business practice of?
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selling the same good at different prices to different customers.
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The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as?
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price discrimination
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Price discrimination requires the firm to....?
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separate customers according to their willingness's to pay
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A market force that can prevent firms from price discriminating is?
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Arbitrage
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Perfect price discrimination describes a situation in which the monopolist ....
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knows the exact willingness to pay of each of its customers
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If the government regulates the price that a natural monopolist can charge to be equal to the firms marginal cost, the firm will ...?
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earn negative profits, causing the firm to exit the industry
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In the majority of cases where there is a natural monopoly in the United States, the government usually deals with the problem through??
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regulation
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The analysis of competitive firms sheds light on the decisions that lie behind the?
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supply curve
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Competitive markets are characterized by?
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free entry and exit firms
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A market is competitive if?
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1. each buyer and seller is small compared to the market
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Which of industries is least likely to exhibit the characteristic of free entry?
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a municipal water and sewer
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If a competitive firm is currently a level of output at which marginal revenue exceeds marginal cost, then...?
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one-unit increase in output will increase the firms profit
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Mrs Smith operates a business in a competitive market. The current market price is $7.50. At her profit-maximizing level of production, the average variable cost is $8, and the average total cost is $8.25. Mrs Smith should?
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shut down in both the short run and long run.
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Suppose a profit maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will?
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experience losses but will continue to produce rubber bands.
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Which of the following best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?
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The firm will immediately stop production to minimize its loses
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What fixed costs are ignored because they are irrelevant to a business's production decision, they are called?
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sunk costs
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A firm that exits its market has to pay?
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Neither its variable costs nor its fixed costs
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The competitive firm's long run supply curve is that portion of the marginal cost curve that lies above average...?
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total costs
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When a mangers firms in a competitive market observe falling profits, they may infer that the market is experiencing??
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the entry of new firms
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The long-run supply curve for a competitive industry goes??
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may be upward-sloping if higher-cost firms enter the industry
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When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is?
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upward sloping
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A market might have an upward sloping long-run supply curve if?
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firms have different costs
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The production decisions of perfectly competitive firms follow one of the Ten Principles of Economics, which states that rational people?
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think at the margin
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A concentration ratio is?
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1. related to the control that each firm has over price. 2. reflects the level of competition in an industry. 3. measures the % of total output supplied by the four largest firms in the industry
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Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because?
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the firms product is different from those offered by other firms in the market
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Because monopolistically competitive firms produce differentiated products, each firm....?
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has some control over product price
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A firm operating in a monopolistically competitive market can earn economic profits is...?
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the short run but not in the long run
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When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing firms in that marker will...?
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shift to the left
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In a monopolistically competitive market...?
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firms may enter even though they will earn zero economic profit in the long run
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When a monopolistically competitive firm is in long-run equilibrium....?
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1. marginal revenue is equal to marginal cost 2. demand is equal to average total cost. 3. price is equal to average total cost.
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Which types of firms can earn a positive economic profit in the long run?
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monopolies, but not competitive firms or monopolistically competitive firms
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which of the following marker structures would consumers likely receive the most product variety?
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monopolistic competition
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In the long run, a monopolistically competitive firm produces a quantity that is?
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less than the efficient scale
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In a monopolistically competitive market, social welfare would be enhanced if...?
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price equaled marginal cost
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What best describes the idea of excess capacity in monopolistic competition....
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The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve.
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Both monopolistic completion and oligopoly are market structures ....?
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that fail to achieve the total surplus achieved by perfect competition
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The deadweight loss that is associated with a monopolistically competitive market is a result of ..?
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price exceeding marginal cost
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A business-stealing externality is ..
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the negative externality associated with entry of new firms in a monopolistically competitive market
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The relationship between advertising and product differentiation is...?
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positive, the more differentiated the product, the more a firm is likely to spend on advertising
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What is not an argument made by critics of advertising?
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Advertising promotes economies of scale
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Critics of advertising argue that advertising
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1. often fails to convey substantive information 2. hinders competition 3. creates desires that otherwise might not exist
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When firms in a monopolistically competitive market engage in price-related advertising, defenders of advertising argue that...?
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each firm has less market power
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The primary claim of defenders of advertising is that it
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enhances the information available to consumers
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Results of the study done by Lee Benham on advertising for eyeglasses would suggest that..?
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optometrists would enthusiastically endorse advertising restrictions
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It has been said that many of the patrons in McDonalds restaurants in foreign locations are American tourists, A likely reason why many Americans dine at McDonalds while vacationing abroad ...?
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they know and trust the quality associated with the McDonalds brand name.
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When monopolistically competitive firms advertise, in the long run....?
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they will still earn zero economic profit
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In a language of game theory, a situation in which each person must consider how others might respond to his or her own actions is called a...?
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strategic situation
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In general, game theory is the study of...?
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how people behave in strategic situation
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As a group, oligopolists would always be better off if they would act collectively .....
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as a single monopolist
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Assuming that ologopolists do not have the opportunity to collude, once they have reached the Nash equilibrium, it...
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is always in their best interest to leave their quantities supplied uncharged
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When firms have agreements among themselves on the quantity to produce and the price at which to sell output, we refer to their form of organization as a...?
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Cartel
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An oligopolist will increase production if the output effect is...?
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greater than the price effect
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In which case do firms have some control over their price?
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oligopoly but not perfect competition
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In the prisoners dilemma game, self interest leads....
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1. to a breakdown of any agreement that the prisoners might have made before being questioned 2. to an outcome that is not particularly good for either prisoner 3. each prisoner to confess.
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A dominant strategy is one that:
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is best for the player, regardless of what strategies other players follow
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In a two-person repeated game, a tit for tat strategy starts with ...?
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cooperation and then each player mimics the other players last move.
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A tit for tat strategy starts out......
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friendly, then compensates losing players, and eventually forgives unfriendly players
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A law that encourages market competition by prohibiting firms from gaining or exercising excessive market power is...?
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an anti trust law
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The Sherman Antitrust act.....
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restricted the ability of competitors to engage in cooperative agreements
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The Sherman Act made cooperative agreements
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A criminal conspiracy
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The Sherman Antitrust Act prohibits price-fixing in the sense that....?
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competing executives cannot even talk about fixing prices
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OPEC is able to raise the price of its product by....
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selling production levels for each of its members
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The story of the prisoners dilemma shows why....?
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oligopolies can fail to cooperate, even when cooperation is in their best interest.
